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Postal Service future in question after first-ever default, lawmakers stuck on a deal

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Aug. 1, 2012: A United Sates Postal Service mailbox is seen in Manhasset, N.Y. (Reuters)

Add the Postal Service to the list of problems Congress is so far unable to fix. 

America's mail service endured its first-ever default overnight, failing to submit a required $5.5 billion payment for future retirees' health benefits by Thursday. 

The unprecedented lapse prompted new questions about the fate of the Postal Service as its financial situation spirals ever out of control, and Capitol Hill lawmakers have started a new round of fingerpointing after deadlocking over how to break the slide. 

"Congress must act quickly in order to prevent the loss of thousands of jobs in the Postal Service and the American mailing industry," Rep. Steve Cohen, D-Tenn., said in a letter to House Speaker John Boehner. 

The agency is expected to miss another $5.6 billion payment in September. For now, the missed mega-payments are not expected to affect day-to-day operations. An agency statement this week said the default would have "no material effect" on the Postal Service, affirming it would continue to deliver mail and pay employees as usual. 

But the default again raises questions about whether taxpayers will eventually need to step in to save an agency that historically has gotten by without taxpayer support, even though it is subject to congressional oversight. 

That oversight has complicated the agency's efforts to overhaul itself. As it loses roughly $25 million a day, the agency has rolled out a plan to cut Saturday delivery, reduce low-volume postal facilities and end its obligation to pay the future retiree health payments. 

The House and Senate each have taken a different approach to that plan. 

While the Senate passed a bill in April that provides an $11 billion cash infusion to help the mail agency avert a default, it also would delay many of the planned postal cuts for another year or two. The House remains stalled over a measure that allows for the aggressive cuts the Postal Service prefers, in large part due to concerns among rural lawmakers over cutbacks in their communities. 

The Postal Service originally sought to close low-revenue post offices in rural areas to save money, but after public opposition it agreed to keep 13,000 open with shorter operating hours. The Postal Service also is delaying the closing of many mail processing centers, originally set to begin this spring. The estimated annual savings of $2.1 billion won't be realized until the full cuts are completed in late 2014. 

Senate Democrats have urged the House to act quickly so that the two chambers can iron out the differences between their two bills. The House, though, is not expected to act until September or later. 

Asked about the possibility of action on the Postal Service next month, Boehner said, "there will be a lot of conversations over the next five or six weeks" on what the House can fit into its "limited" schedule. 

"The postal legislation, there's a lot of conversation about it, but, you know, these missed payments are not going to affect the ability of the post office to do its job," Boehner said. 

House Democratic Leader Nancy Pelosi claimed that Republicans have "shown no interest in offering meaningful solutions." 

Postmaster General Patrick Donahoe has described a "crisis of confidence" amid the mounting red ink that could lead even once-loyal customers to abandon use of the mail. 

Banks are promoting electronic payments, citing in part the growing uncertainty of postal mail. The federal government will stop mailing paper checks starting next year for millions of people who receive Social Security and other benefits, paying via direct deposit or debit cards instead. 

First-class mail volume, which has fallen 25 percent since 2006, is projected to drop another 30 percent by 2016. 

The Associated Press contributed to this report.